Brazil's high powered economy

Key Points:
External headwinds most culpable in 2011 for poor equity returns, 2012 (thus far) has seen returns of 18.8%
Positive policy support should see the Brazilian economy stage a strong comeback in 2012
Growing consumer strength poised to benefit 2 key sectors - Consumer Sectors, Financials Sector
Demographic and Structural changes present investors with opportunities to benefit from Brazil's continuing transformation
Brazil currently offers potential upside of 27%, maintain 4.5 Star "Very Attractive" rating
After a horrid year in 2011 where it lost -24.7% as a combination of rate hikes to combat inflation and a weak global economic outlook took hold, the Brazilian stock market has come roaring back in 2012 with returns of 18.4%.

EXTERNAL HEADWINDS MOST CULPABLE IN 2011
Ever since the re-ignition of the European debt crisis in the middle of 2011, Brazil’s economy has faced significant headwinds.
The uncertainty took its toll on the local economy with economic activity deteriorating as both capacity utilisation and industrial production began to fall, leaving 3Q 2011 GDP coming in slightly negative at - 0.1% on a quarter-on-quarter basis.
Internally, Brazil had been fighting its nemesis that is inflation in 1H 2011, hiking its key Selic interest rate to 12.50% as it sought to cool an overheating economy which also suffered from rising commodity prices. In addition, lending curbs were introduced in an effort to reduce credit available and reduce Brazil’s demand-pull inflation.
As for the Bovespa, the materials, industrials and utilities sectors were amongst the hardest hit as a result of the above while the Financials benefitted from the initial rate hikes before succumbing to pressure emanating from troubled Europe as well as rate cuts in 2H 2011.

With the closure of 2011, 2012 has spelt much better news for the Latin American nation.

Currently, the Brazilian government has undertaken several measures ranging from the slashing of its key Selic rate to cutting taxes on various goods in an attempt to boost growth since 2H 2011. With the government prioritising growth over inflation control, we take a closer look at 2 key sectors which are poised to deliver.

CONSUMER SECTOR - FROM STRENGTH TO STRENGTH
Brazil’s domestic consumption story, based on demographic and positive structural changes is something that’s not new to investors. However, what investors might not know is that the story has continued gaining in strength. Retail sales in Brazil have been climbing higher and higher, growing by close to 7% for the second consecutive month on a year-on-year basis in November and December, on the back of rising real wages and historically low unemployment (thanks to job creation), with retail sales growing by 7% for the second consecutive month on a year-on-year basis as seen in Charts 1 and 2 below.

CHART 1: RISING RETAIL SALES & REAL INCOME















CHART 2: MORE JOBS, LESS UNEMPLOYMENT


The strengthening of incomes and the creation of more jobs has also seen family expenditure become more resilient as compared to the past.
During the financial crisis of 2008-2009, although family expenditure did not contract, this key component of Brazil’s’ economy saw its growth rate fall significantly from 7.7% to 2.7% on a year-on-year basis from September 2008 to December 2008 in spite of the seasonal effect normally seen in December (holiday sales).
In the most recent episode of the European debt crisis, family consumption held up significantly better and demonstrated its new-found resiliency with a less painful fall from a 5.6% growth rate in June 2011 to a 2.8% rate in September 2011 (Chart 3).

CHART 3: CONSUMPTION'S INCREASING RESILIENCE


Taking a closer look at the retail space, the decision by the government to cut taxes for household goods has seen the purchases of furniture and appliances continue to hold its pace of growth steady with data showing a healthy year-on-year gain of 15.3% in December 2011. Supermarket retail sales have like-wise kept up its pace of growth, registering a growth rate of 4.6% in the same period. However, retail sales for apparel & footwear have slowed as a result of a minor slip in consumer confidence as the weak external environment saw consumers reduce their discretionary spending.

Given the increased stature of the Brazilian consumer, both the Consumer Discretionary and Consumer Staples are expected to benefit from the resilience of Brazil’s consumption story and its growing strength.

FINANCIAL SECTOR - LONG TERM BENEFICIARY
The financial sector in Brazil has long been on the up and up. Credit loan growth in the country has been growing steadily over the course of the decade as a conflux of factors allowed such phenomenal growth.

The very same demographic and structural changes in Brazil that has seen the consumer sector do well have also positively impacted the Financials sector.
With increasing affluence, credit cards and loans to service mortgages (which in part is also due to urbanisation, a structural change), the Brazilian financials have a benefitted from the consumer boom.
Consumer credit has almost doubled over the past since December 2007, while default rates still remain in an acceptable range of 7-7.5%, a far cry from the 8.5% seen during the peak of the financial crisis in 1H 2009 (Chart 4).

CHART 4: CONSUMER CREDIT BOOM


Looking at the larger picture of total private sector loans outstanding, currently, the total amount of these loans only reach approximately USD 1.2 trillion, with a booming economy in the backdrop and as the Middle Class in Brazil grows, incomes increase and urbanisation takes place rapidly, the financials are a sector which is poised for further rapid expansion.

The decision by the Brazilian central bank to cut interest rates is a double-edged sword for financials as although it will cut the rate with which they lend at, the rate at which they borrow to fund their operations will be reduced as well. Historically, the average banking spread for Brazil has averaged 27% with the latest figure as of end December 2011 registering a reading of 26.9%, almost spot on with the long-term average (Chart 5).

CHART 5: AVERAGE BANKING SPREAD


While margins are important for banks, we believe that an increase in the growth of demand for credit in Brazil as a result of lower borrowing rates will more than sufficiently make up for any shortfall in profits as a result of a potential narrower lending spread.

CONCLUSION

Any country moving from an “Emerging Market” status to “Developed Market” status provides investors with several opportunities to capitalise on demographic and other structural changes; in Brazil’s case, the ever-growing consumer spending power and the need for financial services will see the Consumer Staples, Discretionary and the Financial Services sectors prosper.

At current levels, the Bovespa is trading at a price-to-earnings ratio of 9.0X based on 2013’s earnings, representing a potential upside of 27% (as of 7 March 2012) by then when compared to its fair value of 11.5X. We have a 4.5 Star “Very Attractive” rating on Brazil, and a 5 Star rating on the larger Global Emerging Markets.

China A-shares

Key Points:
The China A-shares market can present investors with a unique investment opportunity, as it differs in several aspects from the H-shares and red chips market, a market comprised of Hong Kong-listed Chinese companies. In particular, its sector weightings differ significantly
The valuation of the CSI300 index (a proxy for the China A-shares market) has reached an extremely attractive level
The market will give investors exposure to China’s economic growth story.The latest shift towards accommodative policy in both monetary and fiscal policies will set the Chinese equity markets for a rally, keeping a three-year investment horizon in mind .
The Chinese equity market is one favoured single-country equity market, keeping a three-year investment horizon in mind.
Use the Hang Seng Mainland 100 (HSML 100) index as a benchmark for the Chinese equity market. This benchmark comprises of both H-Shares and Red Chips, which are Hong Kong-listed Chinese companies. While these companies give exposure to the Chinese economic fundamentals, A-shares is a different asset class altogether, exhibiting some different characteristics and opportunities. In this article, we will look at the investment opportunities that lie in the China A-Shares market.

WHAT IS UNIQUE ABOUT THE A-SHARES MARKET?
The fundamental difference between the A-shares and H-shares or red chips market is the opportunities that exist to invest in them. A-shares stocks are only listed on the Shanghai and Shenzhen Stock Exchanges whereas H-shares stocks are listed in the Hong Kong Stock Exchange.

Due to regulatory restrictions in mainland China, foreign investors cannot freely invest in the A-shares market. There are currently only three types of investors who are qualified to invest in this market: Chinese citizens or companies, investors with a Qualified Foreign Institutional Investors ("QFII") status or investors with a Renminbi Qualified Foreign Institutional Investors ("RQFII") status.

Using the China Securities Index 300 (CSI300) index as proxy for the China A-Shares market.

Table 1: Summary of Differentiating Characteristics
A-Shares H-Shares Red Chips
Benchmark Index CSI300 Index HSML100 Index
Exchange Shanghai /Shenzhen Hong Kong Stock
Currency RMB HKD
Incorporated Mainland China Outside of Mainland China

Apart from being more restrictive, the A-shares market presents a whole different opportunity. First of all, stocks are denominated in its local currency (yuan) which means that investors will be exposed to currency movements, which is beneficial if you are expecting an appreciation of the yuan. Secondly, although some companies have dual listings in Hong Kong, the A-shares universe is much more fruitful and broad, comprising of over 2,000 stocks.

Finally, the sector allocation in the A-Shares market, as measured by the CSI300 index, differs significantly from that of the HSML100 Index. As we can see from Chart 1, the HSML100 index is heavily weighted in the financials, energy and telecommunication services sectors. On the other hand, the CSI300 index has a significantly larger weighting towards industrials and materials; this weighting reflects the Chinese economy’s actual GDP composition more accurately. Furthermore, we can also note that the CSI300 Index is more weighted towards the consumer sector, with consumer discretionary making up 8.1% of the index, as opposed to 5.0% for the HSML100 index. This means that A-shares investors will have a greater exposure to China’s domestic consumption story, which we expect will become increasingly important to the Chinese economy in the coming years.

CHART 1: SECTOR ALLOCATION OF THE A-SHARES AND H-SHARES/RED CHIPS MARKET



RECENT DEVELOPMENTS
As mentioned earlier, there are heavy restrictions in investing into the China A-Shares market. There will be some time before investors can freely invest directly into Chinese equity markets, but in the recent years and even months, we have seen some major steps made towards liberalising the Chinese currency as well as the equity markets.

QFII
One of the ways to invest in Chinese equities is via obtaining a QFII quota. The QFII quota was introduced in 2002 and since then 117 institutions have successfully received a license and quota. Up until 20 January 2012, US$22.2 billion worth of investment quota has been approved. However, the quotas under the QFII program are currently capped at US$30 billion.

Despite the fact that there are still some major obstacles, further efforts to liberalise the capital markets were seen by the introduction and approval of the first batch of RQFII quotas.

RQFII
RQFII is another way to invest in Chinese equities. The significant batch of RQFII quotas approved since end-2011 is a sign that China has intent to open up its capital markets further to foreign investors. 21 institutions and 20 billion yuan worth of RQFII quotas have been approved since end-2011. However, not only does the RQFII differ from the QFII program in its currency (RQFII uses Renminbi as opposed to US dollars), there is also a restriction of up to 20% that can be invested in equities using the RQFII quota, unlike the QFII quota. Nonetheless, we can observe the move as a signal that China will gradually liberalise its capital markets and liquidity for foreign investors will improve over time.

SEIZE THE OPPORTUNITY WHILE VALUATIONS REMAIN ATTRACTIVE!

Investing in the A-Shares market will expose investors to the same macroeconomic fundamentals of the Chinese economy as the H-Shares or Red Chips will. As we outlined in the article, Prepare for a Chinese Rally, we expect that resilient economic growth and a shift towards accommodative policy in both monetary and fiscal policies will set the Chinese equity markets for a rally, keeping a three-year investment horizon in mind. These two points are just as applicable to investing in the A-shares market.

H-Shares/Red Chips

The one fundamental difference important for investors is the market’s valuations. The HSML100 index is also trading at an extremely attractive level after its forward 12-month PE dipped below the 10.2X level, which is one standard deviation below its historical mean. Since the start of the year, the Chinese equity market has already embarked on a rally; however, valuations are still attractive as the HSML100 index’s 12-month forward PE was at 9.8X (as of end-February 2012), a 3.6% discount from the 10.2X level.


A-Shares

Some investors may already be aware that the A-shares market has historically been at a significant premium to the H-shares or red chips market. One of the reasons explaining this premium is due to the dominance of retail investors in the A-shares market, whereas other markets are dominated by institutional investors. The investment restrictions which bar foreign investors from participating, firstly limits the possible investors into the A-shares market. Secondly, there is a limited range of investment options open to people in mainland China, which is what pushes retail investors towards equity markets in order to park their money, pushing up the valuations of A-shares stocks.

As we can see in Chart 3, at its peak in 2007, the CSI300 index’s forward PE was trading at a 74% premium to the HSML100 index’s. However, the good news is that, in the recent two years, the two indices’ valuations have been converging. CSI300 index’s valuation is currently trading at a 9% premium (as of end-February 2012) to the HSML100 index’s, a significant decline from the historical average of 28%.


The tightening gap between the two indices’ valuations indicates cheapness of the A-shares market. Since the reasons which push A-share valuations at a premium will persist in the market as long as the market remains restricted, we should continue to see the market priced at a premium. Furthermore, in the past, when the premium between the two indices contract to such levels, the CSI300 index market has seen a steeper subsequent upside (compared to the HSML100 index).

CHART 2: A-SHARES TO H-SHARES AND RED CHIPS PREMIUM


On the other hand, as we can see in Chart 3, using a similar analysis as we did in evaluating HSML100 index’s valuations, we can see that the CSI300 index’s forward 12-month PE has dropped below its historical mean since 2010. Since then, it pierced through the 12.2X level towards the end of 2011, which is one standard deviation below its historical mean. Even though the index has rebounded along with other equity markets around the globe, valuations are still trading at a 12.5% discount from the 12.2X level (as of end-February 2012).

CHART 3: ESTIMATED MARKET VALUATION OF THE CHINA SECURITIES INDEX 300 (CSI300) INDEX


Apart from looking at the market’s PE ratio, it is also appropriate to look at the market’s estimated Price-to-Book ratio (PB) and estimated Return on Equity (ROE). Since the CSI300 index is composed largely of capital-intensive activities and financial institutions, such as companies in the materials and industrials sectors, PB is a suitable measure for its market valuation.

Intuitively, since PB is a valuation measure and ROE is a profitability measure, these two measures should be moving together since you would be willing to pay more for a more profitable company. If we look at Chart 4 however, we can observe that the PB of the CSI300 index has been steadily declining since the end of 2009. But this does not seem to merely represent a retreat from previously overvalued companies, because at the same time we saw ROE increase rapidly. Up until end-February 2012, the estimated ROE reached 19.4%, inching closer to the highest levels seen in 2008. The divergence in PB and ROE is a rare phenomenon which further indicates the attractiveness in the A-shares market valuation.

CHART 4: COMPARING PROFITABILITY WITH VALUATIONS OF THE A-SHARES MARKET



In conclusion, not only will the China A-shares market be supported by economic growth fundamentals and a shift towards accommodative policy, its valuation has also reached extremely attractive levels, if we consider PE, PB and ROE measures. According to our estimates, as of end-February 2012, the estimated PE for the CSI300 Index is at 10.3X and 8.3X for 2012 and 2013 respectively, significantly lower than its fair value of 15X.

Rallying higher and higher

After a disappointing 2011, global investors have been on a “risk on” mode in 2012. Recently, a better-than-expected sovereign debt auction result in Spain and Italy after their downgrades starts to improve market sentiment. In addition, the extended low interest rate decision by the Fed also gives support to many riskier assets such as equities and commodities.

In 2012 thus far, BRIC countries (Brazil, Russia, India and China) and Global Emerging Markets (GEMs) have outperformed the other parts of the world by a huge margin, in line with our earlier research calls for investors to overweight GEM and China. Our less-positive views on Europe, Malaysia and Indonesia have also been right, as evidenced by the sluggish performance of these markets thus far.

Table 1: Market Performance
Market/Sector Year-To-Date Return (%)
Russia 22.7
Brazil 18.8
India 16.5
Tech 15.1
Taiwan 13.7
Singapore 13.5
Thailand 13.5
GEMs 12.3
Hong Kong 12.0
Asia ex-Japan 11.7
China 11.0
Korea 10.7
Europe 8.2
US 7.7
Japan 6.9
Australia 4.7
Malaysia 3.2
Indonesia 1.7
Source: Bloomberg, as of 15 March 2012
excluding dividends and in RM terms


Bigger Bull Run To Come
Many investors may have missed the strong rally in January and February and they are worrying if the markets are “too high” to invest right now. We believe that even after the rally since the year began, our favourite markets in 2012 namely GEMs and China are still trading at extremely attractive valuation levels.

The potential upside for GEMs and China by end-2013 is about 52% and 87% respectively based on our relatively conservative projection (as of 15 March 2011). Don't forget that these, and most other markets, have not yet come back to pre-August 2011 levels. Weak sentiment still prevails and the bigger bull run is yet to come!

World's ageing population

WITH the world's population growing older, there will be a lot more elderly people willing and able to work longer periods in their lives in both developed and emerging economies.

According to the United Nations (UN) population division, the number of people over 60 years old is projected to grow from under 800 million currently (representing about 11% of the world's population) to over two billion by 2050 (accounting for about 22% of the world's population).

Increasing longevity, declining fertility (families having fewer children) and with people becoming more health conscious, the global age structure is changing rapidly.

This is leading to wide-ranging economic and social consequences that governments around the world have begun to tweak and make amendments to their retirement age policies.

The following are how some developed and emerging economies are managing the aging population situation.



The United States
According to the Administration on Aging (AOA), an agency under the US Department of Health and Human Services, persons 65 years or older numbered 39.6 million in 2009, representing 12.9% of the US population or about one in every eight Americans. By 2030, it estimates that there will be about 72.1 million older persons.

According to the Urban Institute, a US-based think tank that carries out non-partisan economic and social policy research, retirees are eligible to receive Social Security benefits at age 62 but these benefits are reduced progressively before they reach full retirement.

The full retirement age was raised from 65 to 66. A 1983 legislation raised retirement age for those who will turn 62 in 2000. The full retirement age will increase gradually again beginning with those turning 62 in 2017.

“Those retiring at 62 will receive only 70% of their benefits when the full retirement age is 67, compared with 80% for those who retired early when the full retirement age was 65,” it says.

It pointed out that since 1940, when Social Security began paying monthly retirement benefits, life expectancy at age 65 has increased 5.1 years for men and 6 years for women.

“The full retirement age would have to increase to 73 to have the same expected years of remaining life in retirement today as in 1940,” it says, adding that increasing the Social Security's retirement age has been gaining political traction in the US.

“In June 2010, the majority and minority leaders of the US House of Representatives both expressed willingness to raise the retirement age. This would promote work at older ages, improve the system's solvency by shortening retirements and reducing lifetime benefits, and better target benefits to the oldest Americans.”

China
According to data released by China's National Bureau of Statistics last year, the number of young people in the world's most populous country dropped significantly as a proportion of the population in 2010. Those under 14 years accounted for 16.6% of the population, down 6.3 percentage points from 2000.

The number of people over 60, however, rose by nearly three percentage points to 13.3% of the total population.

The Chinese government's family-planning policy, such as its one-child policy, also reduced annual population growth to below 1%, with the rate projected to turn negative in the coming decades.

According to the UN, more than 30% of China's population is expected to be aged 60 or older in 2050.

Last year, various news reports said the country is planning to push back the age at which workers can retire - due to its “aging population dilemma.”

The retirement age in China currently is 60 for men and 55 for female civil servants and 50 for female workers.

The Harvard Initiative for Global Health, in its working paper series titled “Population Aging and Economic Growth in China,” said despite a projected decline in China's economic growth going forward, its aging population is unlikely to create significant economic problems.

“Its highly productive economy is awashed with skilled workers and with those seeking to join the labour force. There is little prospect of a lack of workers leading to a marked slowing of growth in gross domestic product (GDP) or GDP per capita.

“To the extent that older workers are retiring, there are more than enough working-age people to fill their shoes and to support the daily needs of China's elderly population. Nevertheless, policy reforms in education, health, pensions, labour policy and internal migration - could make China's economic future all the more secure,” it says.

Japan
According to data by the UN in 2009, Japan has the oldest population with a median age of 44 years, with Japanese women having a life expectancy of 86 years, the highest in the world.

By 2050, the UN says it expects more than 40% of Japan's population to be 60 years old.

Japan is also expected to experience a significant increase in the number of centenarians, from less than 76,000 in 2009 to almost 800,000 in 2050.

“Consequently, by mid-century, Japan is expected to have the world's largest number and proportion of centenarians, since nearly 1% of Japan's population will be aged 100 years or over,” the UN says.

With this data, it's not surprising that Japan's aging population are willing to continue working as long as they are still able.

“According to a survey by Japan's Ministry of Health, Labour and Welfare, workers in general still have a strong motivation to continue working after age 60,” according to a 2011 working paper by the Harvard Initiative for Global Health.

It pointed out however that Japan's public pension system still uses an earnings test, which encourages early retirement and part-time work and thus deprives the country of a capable and willing older workforce.

“Compounding this problem is the predominance of mandatory retirement practices, typically at age 60, in Japanese firms.

“In order to avoid these negative effects of the public pension's earnings test and mandatory retirement on the labour supply behaviour of the elderly, the Japanese government has started to raise the pension-eligible age from 60 to 65 and to require employers to extend employment to age 65,” it says.

The working paper adds that this has had a significant impact, with the labour force participation rate for men aged 60 to 64 increasing from 71% in 2006 to 77% in 2009.


South Korea
South Korea's rapidly growing aging population has become a cause for concern that its economic growth potential could be seriously affected.

According to reports, the country's GDP grew just 0.4% in the fourth quarter of 2011 over the previous quarter, when from 1970 to 2011, its average quarterly growth was around 1.8%.

News reports, citing economists, said the dip in South Korea's economic growth was attributable to its aging population and structural problems. According to the UN, the country's population aged 65 and older is expected to reach 12.7 million in 2050.

But the South Korean government had already been contemplating extending its retirement age - even before announcing its lacklustre GDP figures.

Early last year, The Korean Herald reported that the South Korean government was considering raising the average retirement age to 60 from the present average of 57 to lessen the impact of the retirement the country's baby-boomers.

The report, citing an online survey that was conducted in 2010, revealed that 61% of the respondents considered a rise in retirement age necessary while 49% said they needed the skills and experience of older workers.
Neighbouring Asean countries
According to reports, Malaysia is currently in the final stages of drafting a new law that will see the retirement age in the private sector raised from 55 to 60.

In Singapore, the retirement age is set at 62. By 2012, employers would be obligated to re-employ workers aged between 62 and 65, and subsequently, 67 years of age and beyond.

According to data compiled by various government bodies in Singapore, including its Department of Statistics, the increasing life expectancy and low fertility rates had caused the proportion of residents in the country aged 65 and above to rise to 9.3% in 2011 from 7.2% in 2000.

A Singapore-based analyst says raising the retirement age was an obvious choice, given the increase in the country's aging population and life expectancy.

“With Singaporeans having an average life expectancy of over 80 years old, those who still can actually prefer to continue working as they need the money.”

According to Singapore's Department of Statistics, its average life expectancy in 2010 was 79.3 years and 84.1 years for males and females respectively.

Meanwhile, the retirement age in countries such as Thailand, Brunei and Indonesia is 60 years old.

Cathay Pacific dismal result

Cathay Pacific Airways Ltd, Asia's No. 4 carrier by market value, posted a bigger-than-expected 61% drop in 2011 net profit amid high fuel costs and a slowing global economy, and warned of a more challenging year ahead.

Global economic instability had continued in the first half of this year and jet fuel prices had risen further, Cathay, Hong Kong's largest carrier, said in a statement to the Hong Kong Stock Exchange.

“As a result, 2012 is looking even more challenging than 2011 and we are therefore cautious about prospects for this year,” chairman Christopher Pratt said in the statement.

Cathay might see a softening in premium air passenger demand in the first half of 2012 before an improvement in air cargo demand in the second half, Nomura analyst Jim Wong said in a research note before the results.


An airport apron controller vehicle is pictured in front of a Cathay Pacific Boeing B747-400 Aircraft on the runway at Frankfurt’s airport. — Reuters
He expected a recovery in Cathay's premium air passenger demand in 2013.

The notoriously cyclical global airline industry faces headwinds from high fuel prices and sluggish demand, particularly in the premium segment.

Cathay rival Singapore Airlines Ltd has cut cargo capacity and asked its pilots to take non-paid leave to counter the downturn.

Cathay, the world's largest air cargo carrier, reported an annual net profit of HK$5.5bil, down from a record high of HK$14.05bil in 2010 which included HK$3bil of profit from the sales of its interests in two units.

The result came slightly below an average forecast of HK$5.82bil from 17 analysts polled by Thomson Reuters. The cost of fuel, which is Cathay's biggest single expense, rose 44% to HK$12.46bil in 2011, it said.

Air China, the country's national flag carrier and 19%-owned by Cathay, contributed 31% of Cathay's consolidated pre-tax profit in 2011.

Shares of Cathay were down 2.8% at HK$15.14 after the results. They have risen about 14% this year compared with a 17% gain in the benchmark index.

Cathay stock slid about 38% in 2011, lagging a 20% fall in the main index.

Combined passenger traffic of Cathay and its unit Dragonair grew just 2.9% last year to 27.6 million while cargo throughput dropped 8.6% to 1.65 million tonnes as demand for its key markets in China and Hong Kong slowed.

Cathay Pac Air (0296.HK)
Chinese: 國泰航空公司; Mandarin Pinyin: Guótài
Hong Kong base international airline
52 weeks high:HKD20.15
52 weeks Low:HKD11.80
Current price:HKD15.20
Financial year end:31 December 2011

Results
2011
2010
Change

Turnover
HK$ million
98,406
89,524
+9.9%

Profit attributable to owners of Cathay Pacific
HK$ million
5,501
14,048
-60.8%

Earnings per share
HK cents
139.8
357.1
-60.9%

Dividend per share
HK$
0.52
1.11
-53.2%

Laos stock market has good future prospect

The Lao government didn't just have an eye on business profit, it also wanted to create a new tool to mobilise investment capital by opening the securities exchange, said a top stock market official.

Lao Securities Exchange Chairman and CEO Dethphouvang Moularat made the comment on Monday in response to public concerns about whether setting up the stock market had been a worthwhile investment. Only two companies have listed on the market and the trading value is very low.

The stock market's main income comes from the provision of transaction services for stock traders and the lease of offices. The low trading value has caused the public to wonder whether the several million dollars that went into the venture have been well spent.

Dethphouvang admitted that the Lao-Korean joint venture did not make a profit in its first year of business. But he said this was of no concern because the main purpose of the stock market was to make a profit in the long term, not in the short term.

The stock market expected to make a profit within the next 10 years or sooner if business boomed, he said, adding that ETL, Lao-Indochina Group and Lao World Group are expected to list this year.

A number of companies have expressed interest in listing on the stock market to mobilise investment capital but Dethphouvang was unable to give their names because they have not yet submitted an official request.

The participation of more companies in the stock market would encourage more people to buy shares, which would enable the market to make a profit sooner rather than later, he said.

The main purpose of the stock market was to give businesses another source of capital for growth, which in turn would help the government to create more jobs for Lao people.

As nearly every other country has a stock market, it was impossible for Laos to avoid doing likewise as it seeks to become internationally integrated.

Dethphouvang said the stock market had benefited Laos because in the past businesses could only obtain investment capital from banks, which could offer only short term assistance.

The stock market had an important role to play in helping the government to source investment capital for continued high GDP growth.

Laos needs US$15 billion over the next five years to secure annual GDP growth of at least eight per cent, of which 50 to 60 per cent will come from private investment.

Dethphouvang said the government had a number of measures in place to buffer the country against international stock market turbulence. These included limiting the rights of foreigners to own shares on the Lao stock market, which would prevent the rapid inflow and outflow of foreign reserves.

There are also measures to prevent investors from taking ownership of companies through the stock market. Many other countries allow investors to buy shares that give them ownership of a company.